KALAMAZOO — In a decision that is sure to create significant challenges to cleanup efforts of the Kalamazoo River Superfund site, a federal bankruptcy judge on Friday signed off on a settlement between the U.S. government and Lyondell Chemical Co., relinquishing the Houston-based petrochemical giant from any future cleanup liabilities.

The settlement, accepted by New York Judge Robert Gerber, earmarks $103 million for the Superfund site, which includes an 80-mile stretch of the river from Morrow Lake in Comstock Township downstream to Saugatuck.

Settlement terms

What: Kalamazoo River Superfund site settlement

Total amount: $103 million

Allied landfill: $50.5 million to establish a private environmental trust, which would take ownership of the 80-acre landfill in Kalamazoo. The U.S. Environmental Protection Agency will decide on the cleanup of the property.

Kalamazoo River: $49.5 million for future cleanup of material contaminated with polychlorinated biphenyls, or PCBs. The EPA will decide how the money is spent.

Unsecured claims: About $3.7 million for future work of the Allied landfill.

An estimated 8 million to 9 million cubic yards of harmful polychlorinated biphenyls, or PCBs, are spread along that stretch in riverbanks, flood plains and other areas, a remnant from the paper-making operations that once thrived along the river.

Of the $103 million, the U.S. Environmental Protection Agency will receive $49.5 million for future cleanup of PCBs along the Superfund site.

Another $50.5 million will be set aside for creation of a private environmental trust, which would take ownership of the Allied landfill, currently owned by Millennium Holdings LLC, a subsidiary of Lyondell.

The remaining $3.7 million will be given to the state of Michigan for cleanup work and to pay for damage to habitat and other natural resources at the landfill, an 80-acre dump located on the south side of Kalamazoo that contains about 1.5 million cubic yards of PCB-laden material.

Millennium was identified by the EPA as a potentially responsible party, or PRP, to pay for PCB cleanup work on the Superfund site, the largest in the state and one of the largest in the nation.

Banned in 1979, PCBs have been demonstrated to cause cancer and have other adverse health effects on the immune, reproductive, nervous and endocrine systems, the EPA said. The settlement is inadequate for the site’s cleanup needs, said Jeff Spoelstra, coordinator of the Kalamazoo River Watershed Council.

“I don’t know what to say,” he said. “The proposed amounts were too low all along.

“We have become another example in the national spotlight of what’s wrong with bankruptcy law vs. environmental cleanup. We are a national case study now of why we need to take this to the next level and change the laws.”

Objection deniedThe judge also accepted Lyondell’s plans for reorganization. Lyondell, the U.S. arm of Netherlands-based LyondellBasell, filed for Chapter 11 bankruptcy protection in January 2009.

The EPA and several other federal agencies had sought $2.5 billion from Millennium for future cleanup work on the Superfund site, but the agencies were granted $1.03 billion in the settlement after Lyondell objected to the original claim. As part of Lyondell’s reorganization plan, however, that figure was reduced to about $3.7 million.

Millennium, which is to be liquidated as part of the reorganization plan, has about $8.5 million in current assets, according to court documents. The Kalamazoo settlement is part of broader bankruptcy reorganization plan for Lyondell.

Lyondell plans to emerge from bankruptcy by April 30 with $2 billion in cash and access to $1.75 billion in credit, according to court documents. The company said that if it was not allowed to emerge from bankruptcy at the end of the month, it would incur additional interest costs of $2 million per day on its $8 billion bankruptcy financing loan.

“I am disappointed by the ruling, as it appears the many voices of concerned families in Kalamazoo fell on deaf ears,” said U.S. Rep. Fred Upton, R-St. Joseph, who along with U.S. Sens. Debbie Stabenow and Carl Levin, objected to the settlement this week. “We have been at this for two decades and the community remains resolved to get this cleanup done right.” Nearly all of the public comments on the settlement received by the Justice Department were from the Kalamazoo area.

The comments were considered by the agency prior to making its recommendation to the court Thursday to approve the settlement. According to court documents, “Kalamazoo commenters failed to take into consideration the significant risk that the United States would recover less for the Kalamazoo site if the settlement were not approved.”

The settlement amounts are “fair, reasonable and consistent with environmental law” and are “in the interest of the public,” the Justice Department said in court documents.

Said Lyondell spokesman David Harpole: “The settlement balances both the priorities of environmental law with the priorities of bankruptcy law.

Funding for the trust provides fair funding that otherwise would not exist” if the company went into Chapter 7 bankruptcy liquidation, which Harpole said would have been likely if the settlement was not approved.

Gerber overruled objections to settlement from Gerogia-Pacific LLC and Weyerhaeuser Co. — the only two remaining PRPs that have been identified by the EPA to pay for work at the Superfund site.

The two companies had said the settlement amounts were too low and that an additional 30 days of public comment should be instituted before a ruling was made.